Construction equipment industry to see moderate volume growth in FY21: Icra

By: |
December 7, 2020 10:08 PM

Even as some southern and western states continue to grapple with absence of ample activity under state projects, dealers in northern and central states have reported a pick up in activity under state projects.

Icra’s forecast also stated that most dealers expect a 5-10 per cent hike in prices next fiscal.

Despite zero sales volume in April-June period on account of the nationwide lockdown, the domestic construction equipment (CE)industry may see moderate volume growth this fiscal as dealers have reported a rebound in demand in the second quarter, ratings agency Icra has said.

Icra’s forecast, which is based on a survey of 13 construction equipment dealers from across the country, also stated that most dealers expect a 5-10 per cent hike in prices next fiscal on account of new emission norms, which are to come into effect from April 2021 for the CE industry.

However, the key takeaway is that despite the strong pick up in volumes, which is supporting dealer optimism, uncertainties persist, it stated.

While the industry experienced significant volume contraction during April-June, dealers in most states reported strong revival in volumes from July-September quarter.

Demand ramp up has continued during the third quarter and this is expected to result in moderate volume growth in FY2021, despite Q1 FY2021 being a complete washout in terms of volumes and business activity, Icra said.

Post a sharp volume contraction in FY2020 due to the general elections, the pandemic-induced lockdown and economic slowdown, the CE industry was expected to pummel during FY2021.

To assess the on-ground sentiments amongst the CE dealership fraternity and to understand their outlook for FY2021, Icra conducted a survey of 13 CE dealers in November, it said.

These dealers are spread across Maharashtra, Andhra Pradesh, Bihar, Jammu and Kashmir, Delhi, Haryana, Uttar Pradesh, Uttarakhand, Tamil Nadu, Karnataka, Kerala, Madhya Pradesh and Rajasthan.

The findings indicate that 85 per cent of dealers expect to register volume growth in FY2021 as opposed to about 50 per cent of dealers expecting more than 15 per cent volume de-growth during a similar survey undertaken in April.

“The industry witnessed a significant volume contraction during Q1 FY2021 because of the lockdown impact on demand. Surprisingly, during a period of considerable fiscal strain on government and private sector finances, demand started picking up in late June/July and has continued to hold strong till November,” said Pavethra Ponniah, Vice President and Sector Head, Icra.

The findings of the latest survey clearly reflect a change in sentiment over the last six months, though the feedback has been widely disparate across states in terms of growth expectations, ranging from a cautious 25 per cent de-growth to an extremely optimistic 15 per cent growth, Ponniah said.

According to the survey, regular fund flow from the central government has supported demand from the National Highways Authority of India (NHAI), Pradhan Mantri Gram Sadak Yojana (PMGSY), irrigation projects and rural infrastructure.

Further, a steady pick up in activity under the mining segment has also supported volumes from Q2 FY2021 onwards.

Even as some southern and western states continue to grapple with absence of ample activity under state projects, dealers in northern and central states have reported a pick up in activity under state projects.

While new projects have not been announced, activity has picked up under old projects, it stated.

As per the survey, most dealers reported that a cautious lending environment leading to lower availability of financing has also contributed to restriction in volume growth.

Most states are not facing labour shortages currently, with dealers reporting that a large proportion of migratory labour, which had returned to home towns during the lockdown, has returned to their work locations.

“Given the uncertainty around the pandemic, especially given the recent second wave in some states, the weak macroeconomic outlook, cautious financing environment and the demand sustenance remaining to be seen, Icra continues to maintain a negative outlook for the CE industry,” said Mythri Macherla, Assistant Vice President, Icra.

That said, healthy fund flow from the government and ongoing projects are expected to support demand during H2 FY2021, after sizeable volume contraction during H1 FY2021, she added.

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